Short Note Investing

[Kyle Kline]

Hello,

I am curious if anybody has experience using short note investing to raise funds for an investment property down payment. I just came across the idea, but don’t quite understand how it works or if it would be worth pursuing. I currently do not have enough funds to fund a down payment and am trying to find the most efficient way to save.

Thanks for any help anyone is willing to give!

[Don Konipol]

Quote from @Kyle Kline:

Hello,

I am curious if anybody has experience using short note investing to raise funds for an investment property down payment. I just came across the idea, but don’t quite understand how it works or if it would be worth pursuing. I currently do not have enough funds to fund a down payment and am trying to find the most efficient way to save.

Thanks for any help anyone is willing to give!

Hi Kyle
The way most real estate for sale is priced these days there’s little to no cash flow after debt service with 25% down - borrowing a down payment would put the investor in a negative monthly position. 

The only two ways to rectify this are (1) purchase the property far below market price or (2) significantly increase the property net income usually through some method of “repositioning”. 

Both these 2 are not easy to do, and typically take expertise, experience and or capital.  Despite the guru fed “misinformation” about all these under market price deals, they are actually very rare and require (1) the investor recognizing value that the seller and the rest of the market misses or (2) a seller with a need for an immediate sale and a buyer with the CASH immediately available to conclude a very quick closing usually forgoing inspections, financing, and other 
contingencies. 

A second problem related to “over leverage” is a lack of contingency funds.  Even in a lower priced investment property, like a small SFR, what does the investor without a contingency fund do when say the ac or a furnace need replacement?  If you ever want to get into a tenant nightmare of costly potential litigation become a landlord, have the ac go out in Phoenix in July, and inform the tenant that you just don’t have the funds to replace it!.